Exam 8: Behavioral Economics

A) planning fallacy.
B) framing effect.
C) hindsight bias.
D) availability heuristic.

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A) People are irrational, are prone to systematic errors, have stable preferences, and care about fairness.
B) People are rational, adjust for err ors, have stable preferences, and easily resist temptation.
C) People care deeply about fairness, eagerly and accurately calculate ways to help others, assess future and present options equally well, and resist temptations in their selflessness.
D) People have preferences that depend on context, avoid and are bad at computation, often give in to temptation, and are often selfless in their behavior.

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A) Both believe that people make better decisions when they are given a greater set of options.
B) Behavioral economics focuses on providing more options; neoclassical economics focuses on helping people make more rational decisions with the options available.
C) Neoclassical economics focuses on providing more options; behavioral economics focuses on helping people make better decisions with the options available.
D) Both believe that people are better off with fewer options, allowing them to spend more time calculating the benefits and costs of each available option.

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A) when the brain assumes that light always falls from above.
B) what makes us interpret two-dimensional shaded circles as three-dimensional bumps or holes.
C) what allows us to measure the height of a tall structure by analyzing its shadow.
D) when we sometimes mistakenly interpret the contours of a picture of a ball or a box.

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A) Unconscious intuition uses the newer parts of the brain in the front part of the head.
B) Conscious deliberation uses the older parts of the brain in the front part of the head.
C) Conscious deliberation uses the newer parts of the brain in the front part of the head.
D) Unconscious intuition uses the older parts of the brain in the front part of the head.

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A) Those are the shelving locations that minimize costs.
B) Stores try to make frequently purchased items quicker and easier for consumers to access.
C) Smaller items tend to fall through shopping cart holes, so stores reduce that problem for consumers by having smaller items at the checkout stands.
D) Many of these are small items that people will buy on an impulse.

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A) the invisible hand.
B) fairness.
C) self-interest.
D) cognitive biases.

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A) people's sense of fairness is fairly uniform across the population.
B) most people have little concern for others when it comes to financial matters.
C) individual feelings about fairness and generosity vary widely across the population.
D) most people are willing to give more than they will keep for themselves.

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A) framing effect.
B) confirmation bias.
C) hindsight bias.
D) availability heuristic.

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A) Eddie regularly overspends.Friends and family bail him out, however, so he always ends up with what he wants.
B) Ellen paid good money for a used car that is in constant need of repair.
C) Sparky determines that he has to reduce donut consumption to lose weight but always ends up eating the ones provided in the break room at work.
D) Clark makes regular math err ors at work, sometimes coming out with figures too high, other times too low.

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A) mechanisms imposed by companies to extract more from their workers and customers.
B) policies that do not fundamentally alter decisions because they do not change the benefits or costs of an action.
C) precommitments.
D) hardwired heuristics.

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C

A) people may spend more resources to insure themselves against rare events, but leave themselves uninsured against more common events.
B) someone could persist in pursuing a failed policy despite overwhelming evidence of the failure.
C) bad decisions can be made because people will act without pausing to see whether their intuition is correct or not.
D) some people may wrongly believe in their forecasting ability to predict future outcomes of risky investments.

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A) accept the offer because the dollar amount he would forgo by rejecting is substantial.
B) counteroffer with a more even split.
C) weigh the offer much more carefully because of the dollar amounts involved but ultimately reject the offer.
D) exhibit a stronger negative reaction than the first time and ultimately reject the offer.

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A) is too subjective to be considered in the analysis of economic behavior.
B) can be objectively standardized across individuals.
C) varies from one individual to another but still affects economic behavior in important ways.
D) matters to people, but because of self-interest, fairness has little effect on their economic decisions.

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A) responders are much more likely to accept the offer because of the amount of money involved.
B) responders are no more likely to accept the offer if they consider the split to be unfair.
C) responders are much less likely to accept the offer, because their sense of unfairness is heightened with larger amounts of money.
D) responders will accept offers at a higher rate but will exact greater emotional penalties on the proposer.

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B

A) people may spend more resources to insure themselves against rare events, but leave themselves uninsured against more common events.
B) someone could persist in pursuing a failed policy despite overwhelming evidence of the failure.
C) major business projects may create bottlenecks in the organization because they are not completed as scheduled.
D) some people may wrongly believe in their forecasting ability to predict future outcomes of risky investments.

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A) she will suffer as much disutility from paying for the accident damage as she does from paying the fine.
B) she will suffer less disutility from paying for the accident damage than from paying the fine.
C) she will suffer more disutility from paying for the accident damage than from paying the fine.
D) she will feel less disutility from paying $1,000 than she would receive positive utility from receiving $1,000.

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